Paul Caron links to this discussion in the Washington Post:
[T]he financial gap between Americans and their representatives in Congress has widened considerably since [1984], according to an analysis of financial disclosures by The Washington Post.
Between 1984 and 2009, the median net worth of a member of the House has risen 2.5 times, according to the analysis of financial disclosures, rising from $280,000 to $725,000 in inflation-adjusted dollars. Over the same period, the wealth of an American family has declined slightly, with the median sliding from $20,600 to $20,500. ... The growing disparity between the representatives and the represented means that there is a greater distance between the economic experience of Americans and those of lawmakers. . . .
Of course this is somewhat misleading as the price index for the wealth isn't the same as that for lower income individuals (Hint: they buy different things), and once you allow the index to vary you don't see the drop in median earnings and wealth as commonly assumed.
In addition, there is a strong argument to make that the CPI overstates inflation because it doesn't deal with the increasing quality of products. If an Apple iMac is the same as it was five years ago, would we really want to say that the price level has remained constant? Or that the quality of medical care or housing hasn't improved?
Adjusting for inflation the way it is commonly done is misleading.
Labels: wealthtransfers